SG Telcos

SG Telcos: DBSV has Telco report, with Starhub as Top Pick.
Note that M1’s higher gearing than peers and weak free cash flow may limit earnings payout to 80%, but yield healthy at 6%. StarHub trading at assured 7% yield vs 6% for M1 & SingTel continues to gain mobile rev share while StarHub is delivering well in the non-mobile segment

Quick recap of 2Q2011 results. M1’s & StarHub’s earnings inline while SingTel 5% below house expectations. SingTel disappointed on lower than expected contribution from Bharti and Optus. Bharti hit by 3G rollout costs and higher tax rate in India. Optus witnessed higher mobile competition as smaller player VHA joined market share battle with incumbent Telstra.

M1 may not gear up significantly vs peers. At end of 2Q11, M1 had net debt to annualized EBITDA of 1.1x versus 0.7x for StarHub and SingTel each. M1’s gearing spiked from borrowing $81m to partly pay for FY10 divs. StarHub is top pick as free cash flow is likely to be 120% of FY11F earnings, as Co. pays minimal cash tax due to its deferred tax assets. StarHub has a fixed div policy of 5c per qtr for FY11, which will be maintained in the coming